New figures from the Office for National Statistics (ONS) reveal a deteriorating UK labour market, with unemployment remaining at 4.9% and vacancies falling to 707,000, the lowest level outside of the pandemic since 2014. The data also shows public sector salaries soaring at more than double the rate of private sector wages, prompting warnings from economists.
Public sector pay growth outpaces private sector
Pay among civil servants, NHS workers, and the wider public sector rose by 6.1% in the three months to June, up from 5.5% in the first quarter. This increase was driven by NHS staff receiving their pay award earlier this year compared to 2025. In contrast, private sector wages rose by just 2.8%, lower than the rate of inflation, according to the ONS. This marks the weakest rate of private sector wage growth since October 2020, during the coronavirus pandemic.
After accounting for inflation, average pay excluding bonuses across the economy rose by 1% in real terms in June. Figures published on Wednesday are expected to show that inflation climbed to 2.9% in July from 2.6% in the previous month.
Economists warn of unsustainable divergence
Julian Jessop, Independent Economist and IEA Economics Fellow, said: “Regular pay growth in the private sector has slowed to less than 3%, which will not be enough to keep pace with inflation in the second half of the year. In contrast, pay growth in the public sector is running above 6%. This divergence is unsustainable.”
Mr Jessop added: “Today’s labour market data are dire. The UK economy continues to shed payroll jobs, with net losses of 94,000 over the past year and 188,000 since July 2024. The unemployment rate remains stubbornly high, with a big jump in the single month figure for June. Britain’s labour market is continuing to show the strain of the rising costs of employment.”
Political reactions and implications
The sluggish pay growth casts doubt on Prime Minister Andy Burnham’s pledge to “build a new economy” with good jobs in every region. Mr Jessop also criticised Rachel Reeves’ decision to hike employer National Insurance, saying it is continuing to “clobber firms”. He added: “It should be no surprise that employers are responding by hiring fewer people, cutting vacancies and holding down wages. The Government cannot tax and regulate its way to a stronger labour market. Ministers should focus on reducing the cost of hiring, removing barriers to work and giving businesses the confidence to invest and create jobs.”
Andrew Griffith, Shadow Secretary of State for Business and Trade, said: "These figures show a jobs market that's ground to a halt. Businesses are still absorbing the cost of Labour's disastrous Employment Rights Act and tax rises and the worst is still to come."
